Crowdfunding gives small businesses new way to boost finances

PHOTO ILLUSTRATION BY JOSHUA POLSON/jpolson@greeleytribune.com
Small businesses are finding new ways of using the internet to help funding. Hundreds of websites now offer crowdfunding options in which donors pledge money.

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Late last year, the Kress Cinema & Lounge was looking at certain closure.

The motion picture industry was going digital by summer, which meant Linde Thompson needed a new projector — pronto.

But securing $80,000 to pay for one also seemed an impossible task.

“A bank wasn’t an option,” said Thompson, one of the owners of the downtown independent movie theater at 817 8th Ave . “We had no collateral to offer. We’re not the landlords, so we had no real estate to offer as collateral. Banks these days want dollar-for-dollar collateral.”

A small business loan through the Small Business Administration was out, as well, she said. It would take too much time.

A third option, however, came about — crowdfunding. It’s a relatively new way to raise cash for anything from a college student’s monthly rent to start-up cash to create a business to Thompson’s digital projector project. The sky is the limit in what can be funded this way, in which donors essentially pitch in their pledges through a website, while the money seekers watch the cash come in, typically, over a 30-day fundraising period. Some people offer incentives to donate, such as gift packages from the business or tickets to events, or a copy of the album they help fund. Some sites offer expertise in helping businesses with industry experts, such as CircleUp.

Hundreds of websites now offer crowdfunding options, and soon, there could be more, as the federal JOBS Act will allow businesses to sell equity in their companies online (that, however will come with its own complications and ramifications of dealing with the Securities and Exchange Commission).

According to Kendall Almerico, who started the online crowdfunding site ClickStartMe.com, crowdfunding raised more than $2.7 billion in 2012 to help people and businesses with their capital needs — an 81 percent increase from 2011. Almerico reports industry analysts expect crowdfunding this year to reach $5 billion, and may even triple next year when companies will be allowed to sell stakes in their companies.

Industry experts warn once rules are established to sell equity in businesses — where donors retain a stake in the business — that specific type of crowdfunding may be more trouble than it’s worth.

“Many observers believe there is a fundamental disconnect between the promise of crowdfunding and the system that the SEC will put in place exercising its authority under the JOBS Act,” according to an article in Forbes magazine in April. “Put another way, the risks, burdens and limitations of crowdfunding render it almost completely useless.”

Dick Pickett, executive director of Northeast-East Central Colorado Small Business Development Center, said crowdfunding has its ups and downs, but it is a viable option. Its necessity depends on the circumstances.

“For example, some banks won’t even talk to you if you’re doing a start-up restaurant, even if you have the funds,” Pickett said. “The money is a lot freer (through the banks) than it was two to three years ago, and banks have plenty of it.

“If you can get a traditional loan, it will probably be simpler to take care of because you’re not dealing with 1,000 people.”

For a few locals who’ve tried the fundraising, they say their efforts were successful in more ways than one, and they would likely try it again if other needs came up.

“We raised $10,000 that way,” said Ely Corliss, who recently opened the Moxi Theater in downtown Greeley and is the owner of Bandwagon Magazine. “We just barely made our goal. Not only was it a way to raise money but to create awareness for the project.”

Corliss was trying to generate interest in the Moxi, which he opened in the former Union Colony Dinner Theater location at 802 9th St. While it cost much more than $10,000 to open the theater — he did get traditional financing — the attention he got through his Indiegogo fundraising campaign was immeasurable.

Thompson used a fundraising website called Kickstarter, a website that helps with raising money, but which has an “all or nothing” approach. If seekers aren’t successful in raising their goal, they don’t get any of the money pledged to them; the pledges are simply not processed.

At Indiegogo, Corliss, who was denied fundraising on Kickstarter, said he was entitled to all his donations, regardless if he met his goal, but he had to give up a small percentage to the website for not making the goal.

He said he’s considered using it for other needs, such as repairing his recently broken-down van, which he uses to deliver magazines throughout the city. Thompson often thinks of other uses, mostly in jest.

“We’ve laughed and said, ‘Oh gee, we need to make payroll, maybe we should try it again,’ ” Thompson said, adding that it could be just a matter of time before the public tires of crowdfunding requests coming to their email inboxes.

Thompson said the awareness of her immediate needs just to stay open lit a fire within the community. More than 600 donors helped her raise $90,000 to buy that digital projector.

“What we didn’t expect was the morale boost we got from it,” Thompson said, “especially as we have struggled in the economy we opened in, just to keep doors open. To have 600-plus members of the community pledging money, saying ‘Hey, we like what you’re doing and here’s a little or a lot,’ we were overwhelmed by the goodwill.”

Ticket sales since then also have climbed, she said.

“Whether someone gave $5 or $10 or $1,000, they now had a little bit more of an investment in seeing that we were successful, and brought it to top of mind a little. That’s been helpful.”